USD Partners LP Announces Fourth Quarter and Full Year 2017 Results

March 08, 2018 04:32 PM Eastern Standard Time

HOUSTON--(BUSINESS WIRE)--USD Partners LP (NYSE: USDP) (the “Partnership”) announced today its
operating and financial results for the three and twelve months ended
December 31, 2017. Highlights with respect to the fourth quarter of 2017
include the following:

Increased quarterly cash distribution to $0.35 per unit ($1.40 per
unit on an annualized basis), delivering distribution growth of 7.5%
for the full year 2017

Ended quarter with $205.9 million of available liquidity and
distribution coverage of 1.1x

“Recently, the price of Western Canadian Select has significantly
declined relative to the price of alternative grades of crude oil as a
result of increased oil sands production, apportionment on pipelines,
and full utilization of storage at the Hardisty hub,” said Dan Borgen,
the Partnership’s Chief Executive Officer. “Given the value that our
terminals can deliver to our customers in this environment, we are
well-positioned to execute on multiple near-term opportunities for
contract extensions, new customer agreements and potential expansions to
our existing network. As these opportunities materialize, we expect to
deliver mid-single digit distribution growth in 2018 relative to 2017.”

Market Update

Over the last several months, oil sands production facilities in Western
Canada have returned to normal operating levels and meaningful new
production capacity has been brought online. Additionally, one of the
major export pipelines to the United States experienced a disruption.
The resulting balance of growing crude oil supply versus available
pipeline infrastructure caused the price of Western Canadian Select
(“WCS”) crude oil in Hardisty, Alberta, to discount meaningfully
relative to key benchmarks and alternative heavy feedstocks for
refiners, such as Maya in the Gulf Coast.

This dislocation in prices incentivizes producers to find additional
modes of transportation to reach other markets where they might achieve
better pricing and attracts refiners that seek access to a cheaper
feedstock. In this environment, strategically-located rail terminals,
such as the Partnership’s Hardisty, Casper and Stroud terminals, deliver
critical takeaway capacity and can preserve substantial value for
Western Canadian crude oil.

Production from the oil sands in Western Canada is projected to continue
to grow, and the expected timing of proposed export pipeline additions
remains uncertain. As such, forward curves in the market currently
reflect a discount for WCS relative to West Texas Intermediate of
approximately $20 for the next several years. Combined, these dynamics
create opportunities for market participants to utilize rail
transportation to capture incremental value over that period.

Recent Developments

Customer activity at the Hardisty origination terminal has increased
substantially over the last several months. Current market demand for
the services provided at the Hardisty terminal exceeds the available
capacity, as substantially all of the terminal’s capacity was previously
contracted for by customers under multi-year agreements through mid-2019
or mid-2020. As such, the Partnership’s sponsor is evaluating a
potential expansion to meet near-term demand. The Partnership is also
actively negotiating with current customers to extend the terms of the
existing take-or-pay agreements.

The Stroud terminal successfully commenced operations on October 1,
2017, after the planned retrofit work necessary to handle heavier grades
of crude oil was completed on time and under the Partnership’s initial
budget. Concurrent with the acquisition of the Stroud terminal in June
of 2017, the Partnership entered into a new multi-year, take-or-pay
terminalling services agreement with an investment grade rated,
multi-national energy company (the “Stroud customer”) for the use of
approximately 50% of the Stroud terminal’s available capacity through
June 30, 2020. Per the original agreement, the contracted take-or-pay
volumes with the Stroud customer increased to 30,000 barrels per day on
January 1, 2018, up from 20,000 barrels per day during the fourth
quarter of 2017.

The Partnership’s sponsor is currently negotiating with potential
customers for both the remaining capacity at the Stroud terminal, as
well as potential expansion capacity. These initiatives could grow the
Partnership’s existing comprehensive origin-to-destination solution from
Hardisty to the Stroud terminal near the Cushing storage hub and
represent potential drop down acquisition opportunities for the
Partnership.

During the first quarter of 2018, the Partnership used
recently-available tank capacity at the Casper terminal to support spot
shipments for a large international oil and gas company, as well as for
a local producer’s heavy sour crude oil production. The Partnership is
actively pursuing term agreements with these spot customers for ongoing
use of the Casper terminal. Additionally, the Partnership is exploring
the potential to establish rail-to-pipeline capabilities at the Casper
terminal, similar to the current activity at the Stroud terminal.

Fourth Quarter 2017 Operational and Financial Results

Substantially all of the Partnership’s cash flows are generated from
multi-year, take-or-pay terminal service agreements related to its crude
oil terminals, which include minimum monthly commitment fees. The
Partnership’s customers include major integrated oil companies, refiners
and marketers, the majority of which are investment grade rated.

The Partnership’s results during the fourth quarter of 2017 relative to
the same quarter in 2016 were primarily influenced by the conclusion of
customer contracts at the Casper and San Antonio terminals, as well as
revenues and costs associated with the commencement of operations at the
Stroud terminal. The Partnership also incurred additional operating
costs to support a substantial increase in customer activity at its
Hardisty terminal during the quarter.

The Partnership utilizes derivative contracts to mitigate the exposure
to fluctuations in the value of the Canadian dollar relative to the U.S.
dollar on the Partnership’s results of operations. These derivative
contracts secured an exchange rate of 0.78 U.S. dollars per Canadian
dollar in 2017 versus 0.84 U.S. dollars per Canadian dollar in 2016,
which resulted in a cash outflow of $0.2 million upon settlement in the
fourth quarter of 2017 versus a cash inflow of $0.8 million in the same
quarter of the prior year.

During the fourth quarter of 2016, the Partnership benefitted from the
receipt of a tax refund totaling $1.3 million, whereas the Partnership
did not receive a refund nor pay cash taxes during the fourth quarter of
2017. Partially offsetting the items previously discussed, the
Partnership recorded a lower provision for income and withholding taxes
of approximately $0.2 million in the fourth quarter of 2017 versus $1.1
million in the same quarter of the previous year.

As a result, Net Cash Provided by Operating Activities decreased by 41%,
while Adjusted EBITDA and Distributable Cash Flow decreased by 26% and
39%, respectively, relative to the fourth quarter of 2016. Net income
for the quarter decreased by 44% as compared to the fourth quarter of
2016.

As of December 31, 2017, the Partnership had total available liquidity
of $205.9 million, including $7.9 million of unrestricted cash and cash
equivalents and undrawn borrowing capacity of $198.0 million on its
$400.0 million senior secured credit facility, subject to continued
compliance with financial covenants. The Partnership is in compliance
with its financial covenants and has no maturities under its senior
secured credit facility until October 2019.

On February 1, 2018, the Partnership declared a quarterly cash
distribution of $0.35 per unit ($1.40 per unit on an annualized basis),
which represents growth of 1.4% relative to the third quarter of 2017
and 6.1% relative to the fourth quarter of 2016. The distribution was
paid on February 16, 2018, to unitholders of record as of February 12,
2018.

To listen live over the Internet, participants are advised to log on to
the Partnership’s website at www.usdpartners.com
and select the “Events & Presentations” sub-tab under the “Investors”
tab. To join via telephone, participants may dial (877) 266-7551
domestically or +1 (339) 368-5209 internationally, conference ID
6682828. Participants are advised to dial in at least five minutes prior
to the call.

An audio replay of the conference call will be available for thirty days
by dialing (800) 585-8367 domestically or +1 (404) 537-3406
internationally, conference ID 6682828. In addition, a replay of the
audio webcast will be available by accessing the Partnership's website
after the call is concluded.

About USD Partners LP

USD Partners LP is a fee-based, growth-oriented master limited
partnership formed in 2014 by US Development Group, LLC (“USDG”) to
acquire, develop and operate midstream infrastructure and complementary
logistics solutions for crude oil, biofuels and other energy-related
products. The Partnership generates substantially all of its operating
cash flows from multi-year, take-or-pay contracts with primarily
investment grade customers, including major integrated oil companies,
refiners and marketers. The Partnership’s network of crude oil terminals
facilitates the transportation of heavy crude oil from Western Canada to
key demand centers across North America. The Partnership’s operations
include railcar loading and unloading, storage and blending in on-site
tanks, inbound and outbound pipeline connectivity, truck transloading,
as well as other related logistics services. In addition, the
Partnership provides customers with leased railcars and fleet services
to facilitate the transportation of liquid hydrocarbons and biofuels by
rail.

USDG, which owns the general partner of USD Partners LP, is engaged in
designing, developing, owning, and managing large-scale multi-modal
logistics centers and energy-related infrastructure across North
America. USDG solutions create flexible market access for customers in
significant growth areas and key demand centers, including Western
Canada, the U.S. Gulf Coast and Mexico. Among other projects, USDG is
currently pursuing the development of a premier energy logistics
terminal on the Houston Ship Channel with capacity for substantial tank
storage, multiple docks (including barge and deepwater), inbound and
outbound pipeline connectivity, as well as a rail terminal with unit
train capabilities. For additional information, please visit
texasdeepwater.com.

Non-GAAP Financial Measures

The Partnership defines Adjusted EBITDA as Net Cash Provided by
Operating Activities adjusted for changes in working capital items,
changes in restricted cash, interest, income taxes, foreign currency
transaction gains and losses, adjustments related to deferred revenue
associated with minimum monthly commitment fees and other items which do
not affect the underlying cash flows produced by the Partnership’s
businesses. Adjusted EBITDA is a non-GAAP, supplemental financial
measure used by management and external users of the Partnership’s
financial statements, such as investors and commercial banks, to assess:

the Partnership’s liquidity and the ability of the Partnership’s
businesses to produce sufficient cash flows to make distributions to
the Partnership’s unitholders; and

the Partnership’s ability to incur and service debt and fund capital
expenditures.

The Partnership defines Distributable Cash Flow, or DCF, as Adjusted
EBITDA less net cash paid for interest, income taxes and maintenance
capital expenditures. DCF does not reflect changes in working capital
balances. DCF is a non-GAAP, supplemental financial measure used by
management and by external users of the Partnership’s financial
statements, such as investors and commercial banks, to assess:

the amount of cash available for making distributions to the
Partnership’s unitholders;

the excess cash being retained for use in enhancing the Partnership’s
existing businesses; and

the sustainability of the Partnership’s current distribution rate per
unit.

The Partnership believes that the presentation of Adjusted EBITDA and
DCF in this press release provides information that enhances an
investor's understanding of the Partnership’s ability to generate cash
for payment of distributions and other purposes. The GAAP measure most
directly comparable to Adjusted EBITDA and DCF is Net Cash Provided by
Operating Activities. Adjusted EBITDA and DCF should not be considered
alternatives to Net Cash Provided by Operating Activities or any other
measure of liquidity or performance presented in accordance with GAAP.
Adjusted EBITDA and DCF exclude some, but not all, items that affect
cash from operations and these measures may vary among other companies.
As a result, Adjusted EBITDA and DCF may not be comparable to similarly
titled measures of other companies.

Cautionary Note Regarding Forward-Looking Statements

This press release contains forward-looking statements within the
meaning of U.S. federal securities laws, including statements with
respect to the ability of the Partnership to achieve contract
extensions, new customer agreements and expansions; the ability of the
Partnership’s Sponsor to develop additional projects and expansion
opportunities and whether those projects and opportunities would be made
available for acquisition, or acquired, by the Partnership; and the
amount and timing of future distribution payments and distribution
growth. Words and phrases such as “is expected,” “is planned,”
“believes,” “projects,” and similar expressions are used to identify
such forward-looking statements. However, the absence of these words
does not mean that a statement is not forward-looking. Forward-looking
statements relating to the Partnership are based on management’s
expectations, estimates and projections about the Partnership, its
interests and the energy industry in general on the date this press
release was issued. These statements are not guarantees of future
performance and involve certain risks, uncertainties and assumptions
that are difficult to predict. Therefore, actual outcomes and results
may differ materially from what is expressed or forecast in such
forward-looking statements. Factors that could cause actual results or
events to differ materially from those described in the forward-looking
statements include those as set forth under the heading “Risk Factors”
in the Partnership’s most recent Annual Report on Form 10-K and in our
subsequent filings with the Securities and Exchange Commission. The
Partnership is under no obligation (and expressly disclaims any such
obligation) to update or alter its forward-looking statements, whether
as a result of new information, future events or otherwise.

USD Partners LP

Consolidated Statements of Income

For the Three Months and the Year Ended December 31, 2017 and 2016

(unaudited)

For the Three Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

2017

2016

(in thousands)

Revenues

Terminalling services

$

19,875

$

23,454

$

87,210

$

93,014

Terminalling services — related party

5,218

1,791

14,192

6,933

Railroad incentives

(3

)

15

22

76

Fleet leases

211

644

2,140

2,577

Fleet leases — related party

1,607

889

4,401

3,560

Fleet services

449

471

1,854

1,084

Fleet services — related party

(124

)

279

652

1,926

Freight and other reimbursables

380

1,011

863

1,955

Freight and other reimbursables — related party

1

—

2

—

Total revenues

27,614

28,554

111,336

111,125

Operating costs

Subcontracted rail services

2,805

2,004

8,953

8,077

Pipeline fees

6,267

5,255

23,420

20,799

Fleet leases

1,816

1,569

6,539

6,174

Freight and other reimbursables

381

1,011

865

1,955

Operating and maintenance

1,183

562

3,233

2,962

Selling, general and administrative

2,316

2,187

9,214

9,658

Selling, general and administrative — related party

1,562

1,399

5,867

5,768

Depreciation and amortization

6,968

8,367

22,132

23,092

Total operating costs

23,298

22,354

80,223

78,485

Operating income

4,316

6,200

31,113

32,640

Interest expense

2,417

2,559

9,925

9,847

Loss (gain) associated with derivative instruments

(342

)

(781

)

937

140

Foreign currency transaction loss (gain)

71

(630

)

(456

)

(750

)

Other income, net

(268

)

(10

)

(308

)

(10

)

Income before income taxes

2,438

5,062

21,015

23,413

Provision for (benefit from) income taxes

235

1,106

(1,192

)

(759

)

Net income

$

2,203

$

3,956

$

22,207

$

24,172

USD Partners LP

Consolidated Statements of Cash Flows

For the Three Months and the Year Ended December 31, 2017 and 2016

(unaudited)

For the Three Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

2017

2016

Cash flows from operating activities:

(in thousands)

Net income

$

2,203

$

3,956

$

22,207

$

24,172

Adjustments to reconcile net income to net cash provided by
operating activities:

Depreciation and amortization

6,968

8,367

22,132

23,092

Loss (gain) associated with derivative instruments

(342

)

(781

)

937

140

Settlement of derivative contracts

(196

)

759

46

2,399

Unit based compensation expense

1,181

1,250

4,143

4,074

Other

(121

)

259

629

907

Changes in operating assets and liabilities:

Accounts receivable

(11

)

(89

)

256

79

Accounts receivable – related party

(2

)

1,683

(226

)

1,750

Prepaid expenses and other assets

2,837

3,067

4,656

30

Other assets – related party

(253

)

—

(253

)

—

Accounts payable and accrued expenses

(613

)

(520

)

377

(1,897

)

Accounts payable and accrued expenses – related party

63

(1,487

)

20

(20

)

Deferred revenue and other liabilities

(903

)

(430

)

(7,636

)

1,854

Deferred revenue – related party

(535

)

(67

)

531

(2,850

)

Change in restricted cash

(779

)

10

(94

)

(654

)

Net cash provided by operating activities

9,497

15,977

47,725

53,076

Cash flows from investing activities:

Additions of property and equipment

(872

)

(3

)

(27,580

)

(474

)

Proceeds from settlement of purchase price

—

381

—

381

Net cash provided by (used in) investing activities

(872

)

378

(27,580

)

(93

)

Cash flows from financing activities:

Distributions

(9,543

)

(7,722

)

(35,075

)

(29,665

)

Vested phantom units used for payment of participant taxes

(1

)

—

(1,073

)

(77

)

Net proceeds from issuance of common units

—

—

33,700

—

Proceeds from long-term debt

6,000

5,000

50,000

20,000

Repayments of long-term debt

(5,000

)

(10,725

)

(71,342

)

(41,556

)

Net cash used in financing activities

(8,544

)

(13,447

)

(23,790

)

(51,298

)

Effect of exchange rates on cash

(38

)

(1,039

)

(186

)

(480

)

Net change in cash and cash equivalents

43

1,869

(3,831

)

1,205

Cash and cash equivalents – beginning of period

7,831

9,836

11,705

10,500

Cash and cash equivalents – end of period

$

7,874

$

11,705

$

7,874

$

11,705

USD Partners LP

Consolidated Balance Sheets

(unaudited)

December 31,

December 31,

2017

2016

ASSETS

(in thousands)

Current assets

Cash and cash equivalents

$

7,874

$

11,705

Restricted cash

5,914

5,433

Accounts receivable, net

4,137

4,321

Accounts receivable — related party

410

219

Prepaid expenses

8,957

10,325

Other current assets

226

2,562

Other current assets — related party

79

—

Total current assets

27,597

34,565

Property and equipment, net

146,573

125,702

Intangible assets, net

99,312

111,919

Goodwill

33,589

33,589

Other non-current assets

145

192

Other non-current assets — related party

174

—

Total assets

$

307,390

$

305,967

LIABILITIES AND PARTNERS’ CAPITAL

Current liabilities

Accounts payable and accrued expenses

$

2,670

$

2,221

Accounts payable and accrued expenses — related party

244

214

Deferred revenue, current portion

22,011

26,928

Deferred revenue, current portion — related party

5,115

4,292

Other current liabilities

2,339

3,513

Total current liabilities

32,379

37,168

Long-term debt, net

200,627

220,894

Deferred revenue, net of current portion

—

264

Deferred income tax liability, net

614

823

Other non-current liabilities

475

—

Total liabilities

234,095

259,149

Commitments and contingencies

Partners’ capital

Common units

131,169

122,802

Class A units

1,356

1,811

Subordinated units

(60,820

)

(76,749

)

General partner units

(50

)

111

Accumulated other comprehensive income (loss)

1,640

(1,157

)

Total partners’ capital

73,295

46,818

Total liabilities and partners’ capital

$

307,390

$

305,967

USD Partners LP

GAAP to Non-GAAP Reconciliations

For the Three Months and the Year Ended December 31, 2017 and 2016

(unaudited)

For the Three Months Ended

For the Year Ended

December 31,

December 31,

2017

2016

2017

2016

(in thousands)

Net cash provided by operating activities

$

9,497

$

15,977

$

47,725

$

53,076

Add (deduct):

Amortization of deferred financing costs

(215

)

(215

)

(861

)

(861

)

Deferred income taxes

336

(44

)

250

(46

)

Changes in accounts receivable and other assets

(2,571

)

(4,661

)

(4,433

)

(1,859

)

Changes in accounts payable and accrued expenses

550

2,007

(397

)

1,917

Changes in deferred revenue and other liabilities

1,438

497

7,105

996

Change in restricted cash

779

(10

)

94

654

Interest expense, net

2,417

2,549

9,917

9,837

Provision for (benefit from) income taxes

235

1,106

(1,192

)

(759

)

Foreign currency transaction loss (gain) (1)

71

(630

)

(456

)

(750

)

Non-cash lease items (2)

341

-

341

-

Deferred revenue associated with minimum monthly commitment fees (3)

(386

)

255

(1,717

)

1,485

Adjusted EBITDA

12,492

16,831

56,376

63,690

Add (deduct):

Cash received (paid) for income taxes (4)

-

1,315

1,250

(845

)

Cash paid for interest

(2,652

)

(2,164

)

(9,754

)

(8,722

)

Maintenance capital expenditures

(74

)

7

(546

)

(238

)

Distributable cash flow

$

9,766

$

15,989

$

47,326

$

53,885

(1)

Represents foreign exchange transaction amounts associated with
activities between our U.S. and Canadian subsidiaries.

Represents deferred revenue associated with minimum monthly
commitment fees in excess of throughput utilized, which fees are not
refundable to the Partnership's customers. Amounts presented are net
of: (a) the corresponding prepaid Gibson pipeline fee that will be
recognized as expense concurrently with the recognition of revenue;
(b) revenue recognized in the current period that was previously
deferred; and (c) expense recognized for previously prepaid Gibson
pipeline fees, which correspond with the revenue recognized that was
previously deferred.

(4)

Includes amounts we received as a refund of approximately $2.6
million (representing C$3.4 million) received in 2017 for our 2016
foreign income taxes and $3.7 million (representing C$4.9 million)
in 2016 and $0.7 million (representing C$0.9 million) received in
2017 for our 2015 foreign income taxes.